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German Gref briefed Russian President on the bank’s work over the first half of 2017.

CEO of Sberbank German Gref.

President of Russia Vladimir Putin:

How is our country’s biggest financial institution feeling these days?

CEO of Sberbank Russia German Gref:

Thank you. We have just reviewed the results for the first six months of the year. We have a net profit of 317 billion rubles.

Vladimir Putin:

That is close to or more than half of the combined profit of all of the other banks.

German Gref:

This year will be a better one for the banks than was last year, but I believe the figure will be around 40–50 percent. It is usually around this amount.

Our profit increased by 38 percent over the first six months year on year, though last year was a record one in the bank’s history. Of greatest importance this year is that a whole series of trends are showing a real change for the better. We see that lending to legal entities is up by 11 percent, for example, year on year, and lending to individuals is up by 20 percent. Overall, this year is the first time we have seen an increase in lending to legal entities. Growth over these six months has not been high, only one percentage point, but this is an increase all the same.

For now, our loans portfolio is down in only two segments, the municipal and sub-federal one, and lending to major companies. Lending growth is good as concerns small and medium businesses and individuals. The most important result is that lending to small businesses increased by around 6 percent over the first half of this year. This is the first time in the past three years that we have seen such a rapid recovery of our loans portfolio.

Vladimir Putin:

This could be because the big companies with state participation have begun to establish associated groups of small and medium enterprises around them. This is one of the areas the Government has been working on, as you may recall.

German Gref:

Yes.

Vladimir Putin:

Now that they are under instructions to place some of their orders with small and medium enterprises, this is a factor contributing to this growth.

Vladimir Putin with CEO of Sberbank German Gref.

German Gref:

Yes, I believe this is so, Mr. President. A number of factors are at work here, including the drop in interest rates, of course. We have lowered interest rates substantially. If you look at the rates at which we lend to small business now, they have come down by around 4–5 percentage points over this last year, and that is a lot.

We have also changed our operations with small businesses. Today, we provide automatically designed solutions for small businesses with regard to most products.

Vladimir Putin:

Yes, you told me about this. Do you think automation is also a factor here?

German Gref:

Yes. We have started using artificial intelligence solutions. In November last year, we launched a new product called Smart Credit. I was afraid to make any announcements in terms of quality, because when you automate a process, you inevitably worry how the mature portfolio will turn out.

Now, eight months since we launched this new technology, delayed payments are at a record low. It is hard to say what the situation will be like at the 2–3-year mark, but what we have now is a very good result. We have never had such a low volume of delayed payments. Delayed payments account for only 170 million rubles of our entire lending portfolio, and this is a record result.

The second very important trend I would like to mention, and one we are working on right now, is making the entire bank completely digital. Two-and-a-half years ago, we began work on creating a flexible new platform capable of radically changing the time it takes to bring new products onto the market. Today, it takes us one or two years to bring a new product onto the market. With the inflexible and cumbersome platform and the vast volumes we have, testing alone takes 4–6 months. And then if we change one part, it can turn out at any moment that problems crop up in a completely different place because the platform is designed according to principles that are outdated and completely uncompetitive today.

We therefore decided in 2014 to start creating our own new platform. There are only two banks of our size pursuing such projects in the world today – Spain’s BBVA and us. They started earlier than we did. Their project began in 2007 and they have gone further than we have, but we have travelled a long way over these past three years. The goal we have set is to have our own new banking platform ready and replace the old one by the end of 2018. It will take us another two-three years to change all of the platform’s applications, but the new ones will be our own products.

Today, we have around 14,000 people working on this platform. Our subsidiary, Sberbank Technology, employs 10,500 programmers today and is one of Russia’s biggest IT companies. We founded this company in 2011 and it has grown fast since then. We are shifting to the agile work-mode, where programmers and specialists in other areas sit together as small teams working on creating this innovative new platform.

If all goes well and we complete the work in 2018, I believe we will become one of the most competitive global digital companies in the world. Our platform’s flexibility will enable us to work in a large number of different areas and to get new products onto the market not within a year or two, but within weeks. This, of course, will have a tremendous impact on decision-making and working speed, and the platform itself will be built on completely different principles.

Vladimir Putin had a working meeting with Governor of the Central Bank Elvira Nabiullina to discuss the 2016 results.

Central Bank Governor Elvira Nabiullina.

Russian President also informed Ms. Nabiullina that he would propose to the State Duma that they renew her mandate as Governor of the Central Bank.

* * *

President of Russia Vladimir Putin:

Ms. Nabiullina, let’s discuss the results for 2016 and the start of 2017. How do you assess the situation?

Governor of the Central Bank Elvira Nabiullina:

Overall, the situation is normalising and developing. Looking at the financial sector, we see that adaptation to the new conditions is complete now. If you recall, four years ago, we planned some changes to address problems that had built up with regulation and oversight in the financial sector. Of course, external events such as the big drop in oil prices and the restrictions on our financial institutions’ access to external markets had a big impact on our work. We were obliged to take additional measures in order to help the financial sector adapt to the new situation, and, most importantly, help the economy to adapt.

As we see it, the assessments show that 2014–2015 were difficult years for the banking system. They lost profits (profits fell up to five-fold) and their bad assets increased. But the results for 2016 show that the banking sector has either returned to the pre-2014 levels in most areas, or even surpassed them. Profits and capital have recovered. We think the banking system is ready now to increase lending, on a healthy and good-quality basis, what’s more, in order to avoid risks for banks’ depositors and creditors.

Over this time, we continued our policy of cleaning up the banking system, despite the difficult circumstances, because problems really had built up and some banks’ assets existed only on paper. When the economy is growing, this is not hard to hide, but when the economy runs into difficulties, it all becomes evident very rapidly. Over these last four years, we have been forced to revoke the licences of more than 300 banks and 317 lending organisations.

In 70 percent of cases, one of the reasons, sometimes the main reason, was that these banks were taking part in the shadow economy and were involved in dubious operations. We see progress now, because when we began this work actively in 2013, we estimated illegal capital outflow at 1.7 trillion, but we estimate that it came to around 183 billion in 2016. This is still a lot, but it is nonetheless a nine-fold drop. The same is true for turning funds into cash. We estimated this at 1.2 trillion when we began, and now it is slightly more than 500 billion. There is still work to do here, though.

The problem is that not only banks are involved in this. We were forced to go through the banking system, which is the infrastructure, to resolve problems with the dubious operations that were taking place in payment terminals. We succeeded in resolving this problem, including with the use of postal service infrastructure and going through the travel agencies.

The problem today is the use of enforcement orders. They are being used to take money out, and we see that operations of this kind are on the rise. This shows that there is no room for complacency, because illegal revenue, attempts to take capital out of the country, attempts to turn it into cash, all put pressure on the system and are on the lookout for any possible loopholes. We will continue to work actively in this area.

Vladimir Putin:

You asked me to help you with relations with the law enforcement agencies. How is this work organised?

Elvira Nabiullina:

This cooperation has improved and become more effective, and far more cases are opened now following our requests. We are now working in two areas with the law enforcement system. Aside from our routine work and briefings, there is the issue of falsified accounts and reports. It seems we need legal amendments, and we are currently working on this with the law enforcement agencies. We are also working with them on the problem of the so-called ‘runaway bankers’ – when people leave the country. We are holding inter-agency discussions on this issue. There are several proposals on how to resolve this problem, but we see that it can be resolved.

There is another problem for which we also put forward an initiative. It concerns bank secrecy. The Central Bank has always taken a hard line on the transfer of information related to bank secrecy to whoever, because this is an important element of trust in the banking system. However, sometimes we get a vicious circle, when we inform law enforcement agencies about certain violations and they do not have sufficient grounds for opening a criminal case because they lack the relevant information. They may only receive it once criminal proceedings are initiated. So we propose transferring documents covered by bank secrecy when there are signs of such violations, and only in such cases, to ensure that criminal proceedings are initiated as soon as possible and to hold the owners and managers of such banks to account in a more effective manner.

Vladimir Putin:

The return of term deposits should be guaranteed.

Elvira Nabiullina:

Yes, it should be guaranteed unconditionally, because what often happens is that days before [a bank’s] license is revoked, [its] assets are stripped, and here it is important for us to protect depositors’ and investors’ rights.

However, it needs to be said that overall, the deposit insurance system is quite effective. It may be recalled that in 2015 we actually doubled insurance coverage – from 700,000 to 1.4 million [rubles]. The system helps streamline the banking sector.

There is another area to which I would like to draw your attention. Negative factors have revealed the vulnerability of our financial system. Not all the essential infrastructure elements have been put in place in our country. I mean, for example, the plastic cards system and the payment card processing system in general. At that time we transferred all operations on international cards to domestic processing quickly enough, in less than a year. Last year, 2016, our efforts were focused on creating complete infrastructure for using our own Mir cards. At present, over 90 percent of ATMs and payment terminals are ready to process Mir cards and we consider 2017 important, crucial for the use of Mir cards on a large scale.

The vulnerability of our reinsurance system was also revealed. We did not have sufficient reinsurance capacity and last year legislation was passed – thank you for supporting this draft law – and in the second half of the year we established a risk reinsurance company, reinsuring risks especially for our enterprises subject to sanctions, and it is gaining momentum.

There were similar threats related to our suspension from the SWIFT system. We also upgraded our payments system, and should something happen in the country all operations in the SWIFT format will proceed as usual. We have created a SWIFT analogue and the basic elements of financial market infrastructure that were lacking were put in place.

Here, it was probably very important that in 2013 the Central Bank became a mega regulator and so we were able to take a comprehensive view of the financial market as a whole. A lot of work still lies ahead on closing regulatory gaps and tightening oversight not only over the banking sector but also over insurance companies and non-state pension funds.

From our perspective, this is a very important area because overall, they are not very well developed. Their total assets account for about 10 percent of GDP. Whereas the banking system’s assets already slightly exceed GDP – here, there is huge potential for long money and generally, for ensuring that the financial sphere makes a bigger contribution to economic growth, to investment and economic growth. There are still plenty of problems here, including in mandatory third-party liability insurance, which is a highly sensitive sector. We have yet to address all its problems. New legislation is pending and we hope that the situation will improve.

Such are the results of our work in the past four years.

Vladimir Putin:

Good.

Your term of office is coming to an end.

Elvira Nabiullina:

It expires in late June 2017. Under the law, the President names a new candidate three months before the term is due to expire.

Vladimir Putin:

Ms. Nabiullina, you headed up the Central Bank at a difficult time for both the global and the Russian economy. During this time the bank has emerged as an even more important regulator – as you have just said, a mega regulator. It regulates virtually the entire financial market, the entire financial sphere. The Central Bank is crucial for the health of the Russian economy as a whole. Whatever the Central Bank does at this difficult time, whatever steps it takes, this always elicits a response from expert circles and from the public, and whatever the Central Bank does is always a subject of debate.

Having said that, it is perfectly obvious that under your leadership, the Central Bank has done a great deal to stabilise the economic situation in general and to ensure the stable development of the banking sector, as well as the entire financial system. I very much hope that under your leadership, our leading financial institution, our main financial regulator will continue to work just as confidently, making necessary and timely decisions. I therefore intend to submit your candidacy to the State Duma for a new term as Central Bank Chair.

Elvira Nabiullina:

Thank you very much, Mr President. Thank you for your continuing trust. I am confident that in working to meet the goals set by the law, the Central Bank will make a positive contribution to the development of the Russian economy.

Sberbank CEO and Chairman of the Board German Gref briefed Vladimir Putin on the bank’s 2016 performance results and its current activities, including the prospects for developing mortgage lending, and new financial support mechanisms for the defense industry and agricultural sector businesses.

CEO of Sberbank German Gref.

President of Russia Vladimir Putin:

Mr. Gref, concerning the bank’s performance, we know the portfolio, its structure, revenue growth and profit – we know all of these figures, but I would like to hear your view on some matters.

Sberbank CEO and Chairman of the Board German Gref:

Mr. President, last year was quite a good one for the bank. As far as our financial results go, it was the bank’s most successful year ever. We earned a net profit of 517 billion rubles, according to Russian accounting standards.

Previously, 2013 was our best year, before the crisis, when we had a net profit of 360 billion. Overall, 2016 was not an easy year, and so we think this result was very good. We had good results in general last year for all the main indicators.

Last year, we lent more than 9 trillion rubles to our corporate clients. Corporate lending growth was minimal. Unfortunately, demand is still low, and then the revaluation of the loan portfolio to take into account the stronger ruble meant that the portfolio hardly grew at all last year.

But if we look at the absolute lending figures, corporate lending was up 35 percent last year, compared to 2015. 2015 was a crisis year, of course, and perhaps is not the best comparison in this sense, but nonetheless, we see relatively positive development.

Lending to retail clients reached 1.6 trillion rubles last year. Our retail lending portfolio growth was not high – around 8–9 percent, but if we take into account the factors I mentioned, such as the stronger ruble and so on, this represents growth of 28 percent compared to 2015.

Vladimir Putin:

That’s quite good.

German Gref:

Yes. We see that things are really picking up, even if the situation is not yet back at pre-crisis levels. We haven’t yet returned to the 2014 level.

Our loan portfolio’s quality is very important for the bank, of course, and it showed serious improvement last year. We have reduced the share of overdue debts by more than a percentage point – from 3.1 percent to 2 percent of the portfolio. This had a significant impact on our profit figures, of course.

If we compare our portfolio’s quality and the risks we manage, we are performing 2–3 times better on average than the market. This, of course, is the result of our use of a large number of risk management systems, including automated risk management systems, of course. This has given a big boost to our net profits.

As far as lending interest rates go, Mr. President, at the end of last year, they were back to the pre-crisis level for nearly all products we offer. One of our indicators is the capital adequacy ratio, because banks are the only type of business that must maintain a certain capital level at all times. As we did not receive money from the state, we ensure our capitalization completely from our net profits.

All the money we earned last year was put into our capital, except for the 20 percent in dividends that we paid to our shareholders – more than 100 billion rubles, of which more than 50 billion rubles will go into the national budget via the Central Bank.

Mr. President, there are two traditional questions you usually ask me. The first one is mortgage lending.

Vladimir Putin:

And also agriculture and the defense industry.

German Gref:

Let me start with mortgage lending. Our mortgage loan portfolio posted good growth last year. Sberbank today has 55 percent of the mortgage loan market. We have grown during the crisis period and we maintain our share now, primarily through the launch of a number of interesting products.

I want to tell you about a very interesting program we will develop this year. We are implementing it together with the Government. We launched a new product, offered by our subsidiary company – the Mortgage Online service, available via the site DomKlik, where clients can make their applications and sort out all documents needed for getting a loan and choosing an apartment, without having to come to the bank. They only have to physically come to the bank once, because, unfortunately, the regulations do not yet allow documents to be signed online.

So, they have to come once to actually sign the documents. But the first stage, everything related to the commercial sector, selecting an apartment and obtaining a loan, can be done online, using the one-stop service.

Last year, we started an experiment, together with the Government. We thank Mr. Igor Shuvalov for supporting this initiative. In general, we did not even imagine it would have such good results last year. We started a joint project with Rosreestr [the Federal Service for State Registration, Cadaster and Cartography,], and it is now possible to register property rights via Sberbank in just four days, without having to go to Rosreestr.

In other words, you get a mortgage loan, choose an apartment, draw up the purchase and sale agreement, and four days later, you receive electronic confirmation of your registration and can then take possession of your new apartment without having to take any further steps. Seventeen percent of our clients already use this service. This is a big advance, of course, and tens of thousands of apartments have already been registered this way.

We are now working with Rosreestr to completely automatize this process and make it completely online. If people go through real estate agents, this whole process, from beginning to end, usually costs them 150,000 rubles, but today, this process costs around 10,000 rubles.

This is the first project of this kind, and we want to continue it with other state agencies, so that people will not have to run around the banks and state offices. This is a good project.

Vladimir Putin:

And it is bringing down costs. What is your mortgage lending interest rate today?

German Gref:

Mortgage loan interests are at a historic low right now. Interest rates will come down further this year, given the ambitious plans to reduce inflation. I therefore think that we will be able to offer record low interest rates for mortgage loans.

Small business is another important segment. Last time I briefed you on our work, I said we had a problem in that we had not yet learned to lend to small business, and had seen a big drop in our lending in this sector.

We launched a new project at the end of last year – Smart Credit, based on an analysis of the transactional data of clients we have had for more than 18 months.

We do not require clients to provide us with information, but analyze their entire activity using big data technology, and we send them a proposal to take out a loan. Last year, 63,000 clients received such a proposal, and we extended loans worth more than 11 billion rubles using this new technology.

It is too early for boasting, but we see that for the first three months the project has been running, overdue loans (which, unfortunately, are a problem in small business) came to only 11 million rubles. This is a record low. We are now improving this product and trying to expand it to new groups of clients. This is a completely new approach.

Using this technology made it possible to reduce risks and reduce bad loans at the end of last year, and this made it possible to reduce interest rates on loans for small business by 1.5–5 percent. Today, the maximum interest rate for loans for small businesses is 15–16 percent, and the minimum 11.5. Previously, the minimum rate was 15 percent.

This is a big step forward, of course, and I hope that we will make great progress this year in lending to small business, all the more so as we, together with the tax service, carried out an original new project last year to provide ‘smart tablets’.

These ‘smart tablets’ offer a full range of possibilities for registering a legal entity online, opening an account online, and carrying out accounting, tax reporting and financial reporting – all online. They automatically connect with the tax service’s ‘cloud’, and in general, they represent a big step forward.

Vladimir Putin:

What’s the situation with the agricultural sector and the defense industry? Do you lend a lot to these sectors?

German Gref:

Last year was not such a good year as far as lending to the defense industry went, because defense industry companies reimbursed a large number of loans, and this meant that our loan portfolio in this sector fell.

Vladimir Putin:
They paid back earlier loans?

German Gref:

Yes. As far as the figures go, the results were not so good because we were the biggest lender to the sector and had a huge amount of returned loans at the end of the year.

Vladimir Putin:

But this is good for the defense industry.

German Gref:

For the defense industry it’s good, but for the bank, it’s not so good. Most important though, as I briefed you in Izhevsk, are the completely new approaches to restoring enterprises to health. This year, we are starting a comprehensive program with a number of companies we started working with earlier. This involves not just the provision of loans, but also drawing up a joint program for business recovery, financing, and monitoring the implementation of new corporate management technology.

Our loan portfolio to the agricultural sector is growing very fast. This sector in general has withstood the crisis and is our only loan portfolio that practically did not suffer at all. We are the biggest lender in this sector. We worked hard last year with the Agriculture Ministry, and this year began working on a new mechanism for subsidies to the sector.

The first quarter will not be easy, when we are putting the new system through its first tests. Unfortunately, various glitches usually come up in this process. By March, we will have an idea of how it is all working, but I think that the mechanism that the Agriculture Ministry proposed will ultimately produce good results.

Vladimir Putin:

What’s new about the system?

German Gref:

All subsidies are distributed through a very transparent process and are sent directly to the bank. In other words, there are no intermediaries, no regional intermediaries, no choice and so on, no influence…

Vladimir Putin:

No influencing by officials.

German Gref:

Yes. If companies have projects that fit with the areas the state authorities have decided to subsidized, and if the bank agrees to finance these projects, seeing their risk level as acceptable, the interest rate is automatically subsidized by the state. This is a new system that was partially used earlier, but the Agriculture Ministry has decided to expand it substantially now.

Vnesheconombank Chairman updated the President on the state corporation’s performance last year and current operations, as well as lending to industry sectors and support to exports.

President of Russia Vladimir Putin:

Mr. Gorkov, what is the situation at the bank? How are you working to implement your plans at the bank and on its other projects?

Vnesheconombank Chairman Sergei Gorkov:

The bank did well last year, despite a complex situation at the beginning and throughout the year. In general, we have normalized liquidity levels and closed the year with results that were better than we expected. In addition, we allocated some 100 billion rubles for project financing, which was good for last year.

In late December, we adopted a new strategy focused on support for export, the infrastructure, innovations, the National Technology Initiative, new technologies and new high-tech companies.

Regarding the above, we plan to increase financing to 140 billion rubles this year, or by 40 percent over last year. I believe that the ‘anti-crisis’ stage is behind us and VEB is now becoming a full-fledged development bank. We are confident of its future.

Vladimir Putin:

Which projects do you regard as a priority?

Sergei Gorkov:

We approved several projects in December, including the Ivanovo Polyester Plant, which will produce technical textiles. It is the first such plant in Russia, and we will invest $500 million in it. It is a major new project nationwide and the largest in Ivanovo.

Regarding the added-value wood processing plant in Torzhok, we will invest some 40 billion rubles in this relatively large project.
We are also financing export promotion contracts for the delivery of the Sukhoi Super jet to Europe. A new contract with Ireland will help Sukhoi to increase the exports of this jet to Europe. Overall, we have some 100 new deals in our portfolio.

Andrei Kostin briefed President Putin on the bank’s lending to the general public.

President of Russia Vladimir Putin:

Mr. Kostin, we met in September last year, when you briefed me on the preliminary results for 2016, and we agreed to look at your progress on mortgages at the start of this year. I also wanted to talk about the bank’s support for some of the programs for the Far East.

President and Chairman of the Board of VTB Bank Andrei Kostin:

Thank you, Mr. President.

The year was quite successful, and as far as mortgages are concerned, total mortgage lending was up by 15 percent, and the number of loans provided grew by 40 percent.

It is important to note that interest rates on mortgage loans returned to their level before 2014. In other words, there has been a significant drop. We expect our mortgage portfolio to reach the symbolic figure of one trillion rubles at the end of the first quarter of this year.

We think that the dynamics will be quite positive this year. We expect a level of at least 10 percent, even with the absence of the state program for supporting mortgage loans this year. I think the process is underway and will continue to develop with good result.

Regarding programs in the Far East, one thing I would like to note is that one of our subsidiary banks, Pochta Bank, has reached an agreement with the Far East Development Fund, and starting from mid-year, we will launch a program offering development support to people taking the chance to receive a hectare of land in the Far East.

This program will offer small loans of 300,000–500,000 rubles at a preferential interest rate of no more than 8–10 percent. The loans will be for developing the land: building homes or greenhouses and buying farm equipment. We think it will be a good support for developing program.

Dmitry Patrushev briefed Vladimir Putin on the bank’s results for 2016, in particular, with regard to lending to the agribusiness sector and small and medium-sized enterprises. Other matters discussed included the situation on the agricultural risk insurance market.

President of Russia Vladimir Putin:

Mr. Patrushev, what results did the year bring for the bank? What change has your portfolio structure undergone, and what tasks and difficulties do you see ahead this year?

Good afternoon, Mr. President. Thank you very much for this chance to meet you.

I would like to start, of course, with the bank’s results for 2016. Allow me to show you this presentation we have prepared. It gives a clear summary of what we have accomplished.

First of all, our bank is slightly ahead of the sector in terms of lending to the real sector of the economy. Rosselkhozbank is among the leaders in lending to the agribusiness sector in 2016. We accounted for more than 29 percent of lending to the agribusiness sector, and more than 70 percent of loans for seasonal work. We are in second place in terms of lending to small and medium-sized enterprises, and in second place too for our branch network’s reach. We have branches in 80 of the country’s regions.

Vladimir Putin:

Are you referring to small and medium-sized enterprises in the agribusiness sector, or in general?

Dmitry Patrushev:

In general, in the agribusiness sector and in other sectors too.

We are in third place in terms of the size of our loan portfolio to the general public. We are respecting the target figures set for lending to the real sector of the economy. As of January 1, 2017, our total loan portfolio came to 1.7 trillion rubles.

The agribusiness sector remains our main strategic client and partner. We extended more than 1 trillion rubles in loans to the sector under the state agriculture sector development program in 2016. This is 60 percent more than in 2015. We extended 260 billion rubles in 2016 for seasonal work, which, as you know, has decisive importance for the harvest success. This figure was up 37 percent on the figure for 2015.

We place particular emphasis on work with small and medium-sized enterprises, and our loan portfolio in this sector now comes to more than 500 billion rubles. We offer specially tailored products to customers in this sector, including in partnership with the state institutions supporting small and medium-sized enterprises. Rosselkhozbank has extended loans to close to 300,000 self-employed farm people, farmers and private plot owners.

Over these last years, we have expanded considerably our customer, resource and capital base. Customer liabilities increased by more than 400 billion rubles in 2016, up by 35 percent, which is substantially higher than the market average.

As was planned, we replenished our fixed assets by placing ruble-denominated irredeemable bonds for the first time on the Russian market, in two tranches, for a total of 15 billion rubles. Last time we met, I told you that we were preparing this placement, and now we have carried it out. It turned out a bit expensive, but it was nonetheless the first time a Russian bank organized such placement.

We operated with a profit in 2016. Our operating profit hit a record with 55 billion rubles. At the same time, we put practically all of this revenue into our reserves in order to clear our balance of toxic assets. Our assessments show that the most difficult period is behind us now, and in 2016, we achieved a net profit after creating reserves that came to more than half-a-billion rubles.

Our banking group also includes the insurance company RSHB Insurance, which enables us to include in our package of services from agriculture sector customers the possibility of insuring harvests and collateral. This company insured 17 percent of all crops insured under the state support program, 40 percent of all pigs, and 20 percent of all poultry stock in the country. Since 2012, farmers have received 1.5 billion rubles in insurance payouts from RSHB Insurance, of which 800 million rubles was in 2016.

We do encounter difficulties in our work, of course, but we make an effort to overcome them. At the same time, a number of issues demand the shareholders’ involvement and support, and we are in constant contact with the Government and the Central Bank, and we receive their support and understanding. The federal budget’s strict limits do have an impact on the bank’s work though, of course.

Let me conclude by saying that we will continue to complete the tasks you set for lending to our main partner, the agricultural sector, and the real sector of the economy in general.

Vladimir Putin:

Thank you.

Tell me please, I see here in the diagrams that the amount of money you put into reserves and asset regulation was less in 2016 than in 2015?

Dmitry Patrushev:

Yes, Mr. President, it was less. In 2015, unfortunately, we operated with a loss, on which I briefed you, and in 2016, we had a profit of half-a-billion rubles. This is not a big figure, but it is nonetheless a profit. We earned 55 billion and put around 53 billion into the reserves.

Vladimir Putin:

Mr. Patrushev, what about insurance, how do you evaluate the insurance market in the agribusiness sector?

Dmitry Patrushev:

There are some problems, but we think they can be resolved. Most important is that the companies working on this market must not deceive those who want to work with them. If they have received insurance premiums, they must be in a position to make the payouts if an insurance event occurs. This issue requires very thorough study and constant attention.

We established RSHB Insurance five years ago, and it has worked quite well so far. I gave you several figures: We have paid our 1.5 billion rubles over this time, and we paid 800 million rubles in 2016 to clients hit by circumstances covered by insurance and obliged to turn to us for reimbursement.

I think that RSHB Insurance is now among the top six companies working on the agricultural sector insurance market.